Formalises previously hit-and-hope legal procedures

The Government has published a guide it hopes will clarify when land deals are subject to EU procurement rules and when they are not. The guidance relates to agreements between authorities and land developers.

The Office of Government Commerce (OGC) has produced the guidance to help authorities and companies in what it says is a complex area.

"OGC knows of no formal single definition of a development agreement, and the detailed circumstances and arrangements of each case are likely to be different," it said in its guidance. "At its widest it can mean any agreement between a contracting authority and a third party about the use or development of land or property. Typically such agreements are between a local authority and a developer concerning either a greenfield site or regeneration of a brownfield area. Often, but not always, the same authority will have statutory planning responsibilities for the area."

European Union laws govern public procurement to ensure that deals between the public and private sectors are fair and transparent.

Though the OGC said it was impossible to produce clear rules about what was and what was not governed by the EU's rules, it said that some generalisation was possible.

"Is there a work or works required or specified by a contracting authority? Is there an enforceable obligation (in writing) on a contractor to carry out that work or works? Is there some pecuniary interest for carrying out this work (not necessarily a cash payment)?" said the guidance.

"If the answer to all those questions is 'yes', it is likely that agreement will be subject to the public procurement rules," it said. "Where any of the above apply, and the authority is granted the right to exploit the work or works under a development agreement, consideration should be given to whether a public works concession contract arises."

The guidance is issued following a ruling by the European Court of Justice (ECJ) in a public procurement case that has caused some confusion. The ruling in the case, called the Auroux case, found that procurement rules still applied even if parts of a development were to be sold off at the end of construction.

The OGC said the ECJ's decision that the Auroux contract should be governed by public procurement rules was not a surprise. "There seems little reason to doubt that this should comprise a public contract, notwithstanding that part of the development was intended to be disposed of to third parties. Therefore, the ECJ’s judgement on that point does not, in OGC’s view, provide a particularly contentious or surprising outcome," it said.

In fact, the OGC said that the case did not alter its view of when procurement rules are likely to apply. "OGC does not see the ECJ judgement in Auroux as fundamentally changing the applicability of the public procurement rules to development agreements. However, it has raised awareness of the issues with stakeholders," it said.

The OGC said that the defining factor in what was a regulated 'specified requirement' that would be governed by the procurement rules was its level of detail.

"[The local authority's] requirements need to be set out with sufficient clarity and precision in a contract notice or other subsequent documents for economic operators to make an informed decision about whether or not to express an interest in meeting those requirements," it said.

"OGC would argue that the setting of broad parameters for a development is qualitatively different from the type of specification necessary to comply with the requirements of the public procurement rules," it said. "A broad invitation, for example that a site should be developed in accordance with applicable national or local land-use planning policies for the land in question, but with the developer free to put forward its own intentions, proposals and specifications within those parameters, is unlikely in OGC’s view, to offer an adequate degree of precision to readily fall within the definition of a requirement specified by the contracting authority."

The OGC gave an example of one case in which the lack of specifics in a local authority's intentions for a public building meant that a deal will not be subject to the procurement rules.

"A Council invited developers to submit proposals to lease and develop a publicly owned building, and the Council expected such proposals to be consistent with the building’s 'listed' status and with the local land use plans," it said.

"The Council selected what it judged the most suitable proposal against a list of criteria advised to the developers. The Council agreed a long lease of the building, accompanied by a 'development agreement' intended to safeguard the Council’s interests as freeholder. The specific function of the building and any works that had to be carried out were at no time specified by the Council. The conversion and use of the building was proposed by the developer and any works to convert the building to its own use will take place according to the developer’s design and specification, not to the Councils, as reflected in the agreement. It is unlikely that this comprised a public work or works concession to the specification of the authority, and thus was not subject to the public procurement rules."

The OGC said that deals would be less likely to have to conform to the EU's procurement rules if they were undertaken at the developer's initiative; if they are incidental to a transfer or lease of property and are intended to protect the authority's interests; if the authority is not directly paying the developer; or if there is an absence or particular kinds of contractual obligations on the developer.

"Where a development agreement falls outside some or many of these parameters there may be a greater likelihood that the agreement has the characteristics of a public works or public works concession contract," it said.